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Ruling

Subject: Rental property - maintenance and repairs

Question 1

Are you entitled to a deduction for the decline in value of tools and equipment, including a trailer, costing over $300?

Answer

Yes. However, only to the extent that they are used to maintain or repair your rental properties.

Question 2

Are you entitled to an immediate deduction for tools and equipment costing $300 or less?

Answer

Yes. However, only to the extent that they are used to maintain or repair your rental property.

Question 3

Are you entitled to a deduction for the decline in value of the tow bar?

Answer

No.

Question 4

Are you entitled to a deduction for the registration and insurance of the trailer?

Answer

Yes. However only to the extent that the trailer is used to maintain or repair your rental property.

This ruling applies for the following periods:

Year ended 30 July 2010

Year ended 30 July 2011

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You personally undertake the repairs and maintenance of the rental properties that you own.

You have purchased various tools and equipment required to undertake the repairs and maintenance.

You state that these tools and equipment are used exclusively for rental property repairs and maintenance tasks.

You have installed a towbar on your personal vehicle to allow you to connect a trailer and remove garden waste from your rental property.

You calculate your car expenses using the cents per kilometre method.

You have hired trailers in the past to transport garden waste from your rental properties.

You intend to purchase a trailer.

You state that the trailer will be used exclusively for the transportation of materials or garden waste to or from your rental properties.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1,

Income Tax Assessment Act 1997 Division 40,

Income Tax Assessment Act 1997 Subsection 40-25(1),

Income Tax Assessment Act 1997 Section 40-55,

Income Tax Assessment Act 1997 Subsection 40-80(2),

Income Tax Assessment Act 1997 Section 40-175,

Income Tax Assessment Act 1997 Section 40-180,

Income Tax Assessment Act 1997 Section 40-185 and

Income Tax Assessment Act 1997 Section 40-190.

Reasons for decision

Decline in value of tools and equipment costing over $300

Subsection 40-25(1) of the Income Tax Assessment Act (ITAA1997) provides that a taxpayer is entitled to deduct an amount worked out under Division 40 for the decline in value of the cost of depreciating assets that are used to produce assessable income.

Tools and equipment, including trailers, which are used to maintain or repair a rental property, are depreciating assets. You are therefore entitled to a deduction for the decline in value of the assets you have purchased to maintain or repair your properties under subsection 40-25(1) of the ITAA 1997. However, the deduction is limited to the extent that the asset is used for the maintenance and repairs of your rental properties.

Immediate deduction for depreciating asset costing $300 or less

Subsection 40-80(2) allows an immediate deduction for a depreciating asset costing $300 or less if you use the asset predominantly to produce assessable income that is not from carrying on a business subject the two following additional tests:

o the asset must not be one that is part of a set of assets that you started to acquire in the same income year where the total cost of the set is more than $300; and

o the total cost of the asset and any other identical, or substantially identical, asset that you start to acquire in an income year must not be more than $300.

You are therefore entitled to an immediate deduction for tools and equipment you purchase for the maintenance and repair of your rental properties that cost $300 or less and are not part of a set of assets or one of a number of substantially identical assets that cost over $300. However, the deduction is limited to the extent that the asset is used for the maintenance and repairs of your rental properties.

Towbar

The cost of a depreciating asset consists of both the first and second elements (section 40-175 of the ITAA 1997).

The first element of cost is worked out at the time you begin to hold the asset. Generally the first element of cost is the amount paid, or taken to have been paid, to hold the asset (sections 40-180 and 40-185 of the ITAA 1997).

The second element of cost is worked out after the taxpayer has begun to hold the asset. This element includes capital expenditure incurred in bringing the asset to its present condition and location (section 40-190 of the ITAA 1997). Capital expenditure incurred in the acquisition and installation of motor vehicle accessories, forms part of the second element of cost of the vehicle under subsection 40-190(2) of the ITAA 1997, as it brings the vehicle to its present condition.

In your case, the acquisition and installation of the towbar therefore forms part of the second element of the cost of your vehicle. This addition enhances the vehicle's capacity to transport equipment and parts that are used to repair and maintain your rental properties. Accordingly, you are not entitled to a deduction for the decline in value of the towbar as a separate asset.

Note

As you use your vehicle to maintain and repair your rental property you may be entitled to a deduction for a portion of the decline in value of your vehicle. However, you have stated that you use the 'cents per kilometre' method in calculating your car expenses. Section 40-55 of the ITAA 1997 states that a taxpayer cannot claim a deduction for the decline in value of their vehicle when using the cents per kilometre method. This is because the decline in value has already been factored into the calculations for this method. Therefore, you cannot claim a deduction for the decline in value of your vehicle.

Trailer registration and insurance

Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Non-capital costs associated with the maintenance of rental properties are deductible under section 8-1 of the ITAA1997

Therefore, you are entitled to a deduction for the trailer registration and insurance. However, your deduction is limited to the extent that the trailer is used for the maintenance of your rental properties.